Large Power Providers are For-Profit
Electricity is a necessity to fuel our businesses and growing industry. However, many businesses should be made aware that large power providers operate as for-profit entities generating revenue from the essential services they offer. Understanding how they make money off energy consumers like you is key to comprehending ways to reduce your organization’s monthly utility bills.
Types of Power Providers
There are three types of power providers: Municipalities, Cooperatives, and Investor-Owned Utilities, also known as IOUs. Each of these utility company types can generate and distribute electricity to consumers but are each structured differently. While municipalities are publicly owned and operated by local governments, cooperatives are member-owned and typically serve rural areas, and IOUs are private companies driven by shareholders and profit. Each type operates under a unique regulatory framework, which affects how they set rates, manage resources, and serve their communities.
Cooperatives
Cooperatives, often called Co-ops, are private, not-for-profit utilities dedicated to providing energy to their members. Unlike traditional utilities, cooperatives are member-owned and operated, focusing on serving their members rather than generating profit for shareholders.
Energy cooperatives operate as a democracy where every member has a say in decisions. Cooperatives must also reinvest any revenue generated back into their service areas and maintain stable rates rather than profit.
Cooperatives may generate energy, but they often leverage their member’s collective buying power to purchase energy on the wholesale market to secure better rates. Their main goal is to ensure reliable and cost-effective service to its members who typically reside in more rural areas.
Municipalities
Energy municipalities, or ‘Munis,’ are nonprofit government institutions that provide utility services, and are generally found at the local level. Municipalities are somewhat of a middle ground between cooperatives and IOUs. These municipal utilities are owned and operated by the communities they serve. Because they are regulated and managed locally, they have a greater capacity to address specific community concerns and preferences effectively.
Unlike investor-owned utilities (IOUs), which are profit-driven, municipal utilities prioritize community needs, and any revenue generated is typically reinvested back into the utility. This reinvestment supports infrastructure improvements or funds community projects, ensuring that the benefits of the utility are returned to the residents.
While municipalities have the option to own and operate their own generation and distribution systems, many do not. Instead, they often focus on distribution, purchasing energy from larger suppliers, or generating a small segment of it themselves. Typically found in more populated areas, municipal utilities share some similarities with cooperatives, particularly in their commitment to reinvesting revenues for the community’s benefit, but they differ from IOUs in their nonprofit structure and local government control.
Investor-Owned Utilities
IOUs are the largest types of utility companies that service densely populated areas as well as rural populations. While they are protected from competition against other providers through jurisdictional boundaries, they are regulated by their respective government utility commissions to prevent a monopoly. However, being regulated by the government does not mean that they cannot raise prices. IOUs can increase prices to drive further revenue for their shareholders and heavily impact their customers’ bottom lines.
Since Investor-Owned Utilities are for-profit, they do not have your best interests at heart. Brian Coughlan, Utility Management Services’ Founder, started UMS for this very reason. As an account executive for an IOU, he began changing his customers to more advantageous pricing plans, in turn reducing his employer’s profit. The IOU was not happy with this, so Brian decided to use his expertise to help reduce utility bills for businesses instead of lining the IOU’s shareholders’ pockets. That was how UMS was born.
Read more about his story and how UMS’ interests are aligned with yours here.
